How Much Will C-Stores Benefit From CVS Tobacco Ban?

Other drug-store chains likely to follow example: analyst

Published in CSP Daily News

ALEXANDRIA, Va. -- Other pharmacies may follow CVS' lead on ditching tobacco products, while convenience stores stand to gain more customers as tobacco users look for a new place to pick up their cigarette packs, industry analysts say, according to a USA Today report.

CVS competitors such as Walgreens and Rite Aid will likely face pressure from the government and insurance agencies to phase out tobacco, Wolfe Research analyst Scott Mushkin told the newspaper.

"Certainly it's not good health policy," he said. "I'd be pretty surprised three to five years down the road if pharmacies carry the product."

CVS said Wednesday that it will pull tobacco from its stores because it doesn't want to sell a product that could negatively affect consumer health.

If competitors follow its lead, that'll likely bring brisker business for convenience stores both in tobacco and other product sales, say tobacco analysts, since those tobacco users will likely purchase other items as well.

Convenience stores already have a strong base of tobacco buyers, representing 86% of total U.S. cigarette sales among mass merchants, Jeff Lenard, a vice president at the National Association of Convenience Stores (NACS), told the newspaper.

But the sales lift from former CVS tobacco customers alone won't be huge, said CLSA Americas tobacco analyst Michael Lavery, noting that the chain doesn't have a big portion of the tobacco industry's overall sales.

Drug stores represent just about 6% of the $107 billion in U.S. tobacco sales, which includes cigarette, smokeless tobacco, and pipe tobacco, he said. Cigarette sales make up about $90 billion of that overall number.

"When there are more competitors for the same customer, your sales decrease. And when there are fewer competitors, your sales will likely increase," said Lenard. "But this isn't a sea change in competition."

About 250,000 outlets sell cigarettes in the United States, with CVS' more than 7,600 outlets making up only about 3% of cigarette sellers, said Citibank analyst David Adelman.

CVS said in a statement that it expects to lose about $2 billion in revenues on an annual basis from the tobacco shopper.

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